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2010 Looking To the Light

The big news is that President Obama has embraced the Keynesian model of government investing in her people during major distress.
FDR put millions to work in public works programs and building the countryâ€™s infrastructure. Obama has said that he will do the same.

[Midas Touch]

The light at the end of the tunnel as we close 2010 is not an oncoming train.

This is quite a relief from 2008. Two years ago, I was not alone in saying that the best part of 2008 is that it would be over in 12 months. Of 2009, the Bush departure could only bring hope.

Without the constant pillaging of the Treasury, the country’s rate of debt growth is slowing. Other shoes were to drop and we had yet to hit bottom. But therampant pillaging that had been going on for eight years was about to end. There was hope in the heart.

Why am I smiling? For starters, Lazlo Biriyni, who has a history of accurately calling economic and market turns, has turned bullish. He sees improvement in the economy and the stock market continuing its climb. Secondly, President Obama is focusing on employment. With consumption representing 70% of the economy, jobs are a requisite to spending or consumption.

There is also, support coming from the manufacturing sector. CNBC reminds us that the US still represents 20% of the world’s manufacturing. In a recent Bloomberg review, their journalist noted that no country can maintain its strength without a strong manufacturing component. The big 2 --Ford may be a whole, but GM and Chrysler are only a half each-- have conceded that customers want more than vroom-vroom. They require fuel economy and reliability.

In recent models, Ford has been competitive with the Japanese for reliability and even GM is advertising 30 miles per gallon in their cars. Oil prices have dropped from well over $100 to settle in a $70-$80 range.

Gas prices are just under $3 per gallon at the pump. That is down from $4 but still suppressive to spending. Still, with demand low, it is unlikely that pump prices will rise again in the near term.

The hyper inflation of oil prices between 2007 and 2008, adding up to $50 weekly in gasoline bills exploded the mortgage bomb by creating competing necessities.

In most of the US, public transportation is insufficient for commuting. Mortgage borrowers were unable to pay both higher gas prices and increasing mortgages. And, now without the constant Bush pillaging of the Treasury, the county’s rate of debt increase is slowing.

The big news is that President Obama has embraced the Keynesian model of government investing in her people during major distress. FDR put millions to work in public works programs and building the country’s infrastructure. Obama has said that he will do the same.

His successin getting a healthcare plan through the Senate will fuel popular support for him. It should be noted that in the same week that the Senate approved the bill, insurance company stocks hit record levels. This success with both business and the Senate should provide popular support for an employment program.

TARP program has proven to be successful in stabilizing banks and even making a profit. Such are the profits that Citibank is pressuring the government to allow them torepurchase their shares at discounted values rather than at anticipated higher market values. With the exception of their securitized debt division, AIG was always and continues to be profitable, contrary to popular perception.

As already noted, GM is cars are improving in value and sales are starting to pick up, lifting attendant industries.

It’s not all milk and honey.

Recent bullishness has pushed stock prices to overvaluation. There is improvement in the employment picture but mortgage foreclosures haven’t dropped and banks are not lending. This leads to the great caveat. There is talk that the reason for the banks reluctance to lend is their difficulty in securitizing, or packaging and selling, loans. This specifically is what created the problems in mortgage securities and collapsed the economy.

A rally based on securitizing of debt would create a quick boom, but on examination would lead to a major collapse of the economic system.

Near term the Dow averages could drop to the 8,000 level but longer term, if a public works plan produces private industry jobs we could see Dow 13,000 again.